Macroprudential policies as a mitigant against climate risk Global evidence on bank stability

This study examines the effectiveness of macroprudential policies in mitigating the impact of climate risk on bank stability. Utilizing a global panel of 5,096 commercial banks across 108 countries from 2006 to 2023, we find robust evidence that macroprudential policies significantly mitigate the adverse effect of climate risk on bank stability. These policies operate mainly through reducing credit risk, alleviating liquidity pressure, and stabilizing deposit business channels. Heterogeneity analysis further indicates that their stabilizing effect is more pronounced for banks with lower capital adequacy ratios, larger asset scales, and greater market power, as well as for those operating in countries with weaker institutional quality or higher financial depth. Our findings provide global empirical support for enhancing the banking sector’s climate resilience through the implementation of existing macroprudential policy frameworks.